Title

The Transition From Dirty To Clean Industries: Optimal Fiscal Policy And The Environmental Kuznets Curve

Keywords

Endogenous growth; Environmental quality; Second-best policy

Abstract

This paper investigates privately and socially optimal patterns of economic development in a two-sector endogenous growth model with clean and dirty goods. We consider a second-best fiscal policy framework in which distortionary taxes jointly influence economic growth and environmental quality. In this policy setting, three conditions produce an Environmental Kuznets Curve (EKC): (i) dirty output is bounded; (ii) clean output grows endogenously; and (iii) growth in the dirty sector reduces growth in the clean sector. These conditions do not arise with a consumption externality, but can emerge with a production externality. Endogenous labor supply implications are also investigated. Although not necessary for producing an EKC, endogenous labor supply provides additional linkages that produce an EKC under circumstances in which it would otherwise not appear. © 2004 Elsevier Inc. All rights reserved.

Publication Date

1-1-2004

Publication Title

Journal of Environmental Economics and Management

Volume

48

Issue

3

Number of Pages

1050-1077

Document Type

Article

Personal Identifier

scopus

DOI Link

https://doi.org/10.1016/j.jeem.2003.11.007

Socpus ID

23744501465 (Scopus)

Source API URL

https://api.elsevier.com/content/abstract/scopus_id/23744501465

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